Patti's People - Patti Peeples speaks with Natalie Douglas and Ragan Hart - Part 2

So, Natalie, you serve in a variety of NED roles as well as on boards, as do you, Reagan. But talk to me a little bit about when a founder should advance to setting up a formalized board, with or without NEDs. What is the decision path and what is the construct of that external advisory group?

Yeah. Cover them.

Reagan, continuing this view of an advisory group and a board, give me some examples. Let's say it's a company that has a technology in the real world evidence space. What would be some typical functionalities that you would seek as a founder in your set of advisers and eventually a board?

Well, I think it's a good distinction: there are subject matter experts as advisers on an advisory board, and distinct from that, a formal board serves as the fiduciary for corporate governance. At early stages, the advisory board is sometimes conflated with the accountability board, which is a misappropriation. For the question of functionalities using the example of a tech-enabled RWE business, it comes back to the anticipated milestones for the next 12-24-36 months. You need to enable capital investors or board members who can help get the company there based on their network and portfolio. At earliest stages, we don't want too large boards because the CEO then has to manage competing points of view. The composition should grow with you; you need to identify blind spots and engage board members to say, 'This is a risk, can you help augment this capability?' The board members will either be honest or not, and that can help or disable the business. For example, when a strategic acquisition opportunity arises, you need to augment expertise but cannot substitute someone without the expertise. Hard conversations when a board member is no longer serving the company's best interest require engaging other board members for a succession plan. As CEO, be as honest as possible with your board so they can mitigate risk. Qualifying investors involves teasing out rapport; some investors show up differently pre- and post-investment. Leverage ecosystem resources to talk to founders who have taken capital from investors to learn how they showed up in the boardroom. Do your homework because that's critical in your darkest hours.

More often than not, the answer is no to funding or investing. When one gets a no, what should a founder do with that? How can they turn that no into a better pitch? How can they establish a flow of information that helps them move to a better next stage? Natalie?

Reagan, you've brought up the term authenticity, which is so important from some of those early connection points. On the other side of the coin, is the investor also showing up authentically, and how can you lean into that?

The investor sentiment is that we take a predatory view, but there are investors who are not authentic. It's up to you to decide whether to spend time with that type. Recognize that there are counter investor groups trying to enable great businesses. It comes back to engaging and sussing out impressions from brief interactions. Look at the portfolio companies they've invested in. Reach out to founders and operators who have worked with those investors to get reviews. Context matters: is this a three-year relationship? It's never three years; it's much longer. In limited interactions, capture sentiment by the thoughtfulness of their questions. Are they asking intellectually curious questions about your business? Assess different investors based on the questions they ask; it's an indicator of the value they might bring.

Natalie, let's go to you with digging down into some of the nitty-gritty. Let's talk a little about due diligence. I know you conduct a lot for organizations and private equity groups, and it's one of your favorite things. Can you level set what due diligence is for founders who may not have a sense of the construct, and what should they be prepared for?

Reagan, what have you learned over the course of going through this process with multiple companies, and what are some tips you would offer for founders?

Tips: ask the firm about their typical diligence timeline—two weeks, four to six weeks, a quarter? That gives you an indication of stage gates. Set up a data room with core materials spanning financial, regulatory, legal, corporate governance. Then, investors will request different materials. Understand why the investor is asking for a particular material; you might have other collateral that speaks to it. The investor is trying to derisk with limited time. How you show up—demonstrating competency and confidence in your business, market, and learnings—is key. Package information consumably.

Uh, when you said consumable information, it makes me smile a little bit. Of course, coming from a research background, completeness and depth are ingrained in my DNA, and my advisor kept triggering me in this process. Enough is enough, Patty. You know, I really wanted to demonstrate the depth, but it was too much. So there's both sides to think about. Exactly. But too much in that context, right? Because in another context, we might say, 'Hey, Patty, please tell me more.' True. Exactly. Natalie, you work across several geographic locations with due diligence. Does it differ at all?

Well, tell me more about the differences in behavior and maybe the type of deals and how they would structure. How does that specifically differ geographically?

Uh, do you think that in your experience, let's say a founder went through the acquisition process of their company? I had read that about 80% of founders were disappointed after the acquisition. Does that jive with your experience, Reagan? And how are we getting that so wrong? Why does that happen?

I think it comes back to the acquisition process itself. It's nice to feel wanted before the deal, but post-acquisition, depending on terms, you lose autonomy and control, and you don't have the board you built. That conflicts with what seemed like an accretive integration. People are challenging. There is opportunity to think through terms about how long you're required to stay with the new buyer. Pluses and minuses. Maybe you gain information that the deal value wasn't as good as you thought based on new information. But it's still an accomplishment to have matured an asset to the point someone else was interested.

That's a really excellent final point. Natalie, what do you have to add to that if anything?

Uh, so many founders are accidental entrepreneurs. I know each of you work with researchers who had a good idea, turned it into a company, but they are still researchers at heart. Reagan, you alluded to your scientist DNA. That's hard to excise. But one challenge for many founders is how to scale from zero to one and one to 100. The investor has to work with these sticky situations. What are some challenges you've experienced on that side, and could you highlight pitfalls or avenues to success for founders in that scale-up opportunity?

The practices that got you from zero to one are not what will unlock execution for scaling. So it comes back to who you hire to augment experience. A blind spot is founders not reflecting on whether they are still the best CEO to take the company. With a great board, there will be conversations about bringing in additional competency. Receive that with humility. It's in the best interest of scaling, but it can be a point of pride. So be able to speak with your board advisors about what worked well and how to leapfrog. Bring different voices into the room. As the executive team, you're mired in survival and may not take enough time to identify organizational blind spots that could get you to the inflection point.

Yeah, you've built a strong relationship with your startup board, and it can seem daunting to change the construct as you move into the next stage. Natalie, do you have anything to add? And also, maybe you can talk a little about board communication styles.

Uh, Natalie, have you had any experience with a board and a CEO/founder where there was a mismatch in the type of communication, the depth of communication, that you could describe for our audience as essential components for a CEO, a founder to operate in a way that maximizes the board's effectiveness?

Well said. Let's move to some final thoughts. I'd like for each of you to wrap up with three main takeaway messages for founders and investors in this arena. Reagan, let's start with you.

My three main messages for founders and investors: do your diligence on the investors you want to pitch with, find warm connections for warm intros, and ensure your pitch is consumable and digestible to a naive audience. You know your business better than anyone else. Help us appreciate that.

Beautifully said, Natalie.

It was fine. Well, we've come to the end of today's conversation. I think it's been incredibly rich and informative, built on a depth of experience that both of you bring to the table. I want to thank you so much, Natalie Douglas and Reagan Hart, for being so transparent and authentic and providing us with some really good tips and tricks no matter what side of the aisle one sits on. Thank you very much.